A new chapter was added to the ongoing dispute as to whether student athletes should be compensated for (i) the part they play in helping their respective schools generate millions of dollars in revenue from ticket sales and the use of their individual player likenesses, and (ii) the predominant amount of time that is spent as an athlete as opposed to a student. It is a deeper issue than simply framing it as “pay for play”, but that discussion is one for another day …

What is important for our purposes is that the National Labor Relations Board (“NLRB” or the “Board”) recently ruled Northwestern University’s scholarship football players (differentiated from walk-on players) are “employees” under the National Labor Relations Act (the “Act”), and as such, have the right to unionize for collective bargaining purposes.

The Board’s ruling will be appealed, so the practical application of this unionization right and the resulting sub-issues from the decision will be delayed as of this writing. However, there are theoretical tax matters that will play a part in the debate, and that could emerge if student-athletes are in-fact deemed “employees”. Furthermore, the reasoning that the NLRB used to reach its conclusion that student-athletes are “employees” may also be the basis for which student-athletes would be taxed.

Without going into extensive detail, the NLRB determined that the Northwestern football players receive the substantial economic benefit of a scholarship in exchange for performing football-related services, under what amounts to be a contract-for-hire. Additionally, the Board made note of the extensive amount of control that the football coaching staff and University have over the players, and that if team rules are broken, scholarships can be revoked:

NCAA rules prohibit players from receiving additional compensation or otherwise profit from their athletic ability and/or reputation, so scholarship players are dependent on their scholarships to pay for basic necessitates, including food and shelter;

Players devote 40-60 hours per week for football, depending on whether it is in-season versus the off-season, despite the NCAA’s prescribed limitation of 20 hours per week once the academic year begins;

Coaches control living arrangements, outside employment, the ability to drive personal vehicles, travel arrangements off-campus, social media, use of alcohol or drugs, and gambling;

Players also are sometimes unable to take courses in certain academic quarters because they conflict with scheduled team practices.

At this point it is not entirely clear what student-athletes would be taxed on because if the decision is ultimately affirmed, there could be conflicting definitions and concepts in the tax code with respect to “gross income”, “compensation for services” and “qualified scholarships.”

For income tax purposes, “gross income” means all income from whatever source it is derived, and this includes compensation for services. Until now student-athletes have not been considered employees, which is essentially why their scholarship (or parts of) have not previously been taxed. But the NLRB went to great lengths to detail how the Northwestern football players currently receive compensation for playing football (the reason it saw fit to classify them as employees). On that same basis, the IRS would likely take the position that the granted scholarships are compensation for services, and are thus taxable income to the student-athletes. Whether the current statutory language would have to be amended or exclusions would have to be created to properly allow for this taxation is a secondary issue.

Yet there are other benefits the Northwestern football players have cited which they feel would outweigh the negative impact of taxes they might incur. If the decision is upheld, players might be able to qualify for workers’ compensation benefits as a result of injuries suffered on the field. Moreover, instead of coaches having unilateral control over the schedules and rules players must abide by at the risk of losing scholarships, the union the players could form would bargain with the university over “working conditions”. This would be similar to the way in which the NFL and MLB players’ unions bargain for benefits of their respective players.

However, rights that are bargained for by this theoretical union could lead to further questions for the university. For example, if players successfully bargained for health benefits, Title IX (which demands equal treatment of male and female athletes) might require equivalent benefits to all of the other athletic programs on campus. Conversely, bargained-for benefits such as safer football helmets or equipment would not necessitate comparable action on the part of the school.

The NLRB ruling in the Northwestern case is restricted to private universities, meaning efforts by student-athletes of state schools would be governed by each state’s laws on unions of public employees. However, this decision is an initial step in what will be a lengthy process that ultimately could re-shape the National Collegiate Athletics Association (“NCAA”) … and tax issues will most certainly have a substantial impact along the way.

Super Bowl parties are the worst, and that’s largely because people are the worst. I’m no literary buff, but I’m pretty sure that cramming a couple dozen yahoos into a living room for three hours so they can scream incoherently at an inanimate object was one of Dante’s levels of hell.

Things are even worse for us tax professionals. When the party winds down late Sunday night, we’re greeted with the reality that we’re mere hours away from starting another hellacious “busy season” work week, this one with a bit of a hangover.

The only thing that makes a Super Bowl party palatable — aside from the nachos – is having a rooting interest in one of the teams. Of course, if you hail from Colorado or Washington, your allegiances are firmly entrenched. But if you call one of the other 48 states homes, who should you root for?

To help the decision making process, I’ve put together this handy comparison that summarizes the salient issues that you, the sports fan-tax geek — need to know before deciding who deserves your love on Sunday night. Think of the table as one of the Tax Court’s “factor tests,” while the Broncos may win the preponderance of the factors, you may weigh the factors based on your personal ideology and reach a different overall conclusion.

At the root of the issue is whether the team’s new training facility — which was built with private funds as part of the construction of Met Life Stadium — should enjoy the same tax-exempt status as the old state-owned Giants Stadium.

The team argues that the current training facility is grandfathered under the previous, tax-exempt arrangement:

“The new stadium replaced the old stadium. The Giants had a practice facility here and offices here. Now they have a practice facility and offices. Nothing has changed.”

From the county’s perspective, however, the Giants gave up the right to its property tax exemption when it borrowed $650,000 of private money to construct its current facility. As Mayor James Cassella put it, “It’s an office building…Why should someone who owns an office building, built by a private company, not pay taxes?”

In a move made popular by so many retirees tired of the rat race, Rutgers University football coach Greg Schiano is fleeing the Garden State for the palm trees and sandy beaches of Florida. Schiano is not heading south to live out his days playing shuffleboard and poaching the early-bird specials, however. To the contrary, he just accepted a 5-year contract to coach the NFL’s Tampa Bay Buccaneers.

Schiano leaves New Jersey as the State’s highest paid public employee, with an annual salary approaching $2,400,000. Now, Schiano’s salary with the Bucs is yet to be disclosed, but even if it doesn’t represent a raise from his annual Rutgers wage, Schiano stands to put an additional $175,000 a year in his pocket each year. How can I know this?

Tax rates, of course.

Schiano is leaving New Jersey, a state with a top personal tax rate of 8.97%, for Florida, which has no personal income tax. So assuming Schiano was raking in a total of $3,000,000 per year at Rutgers[i] and continues to do so as coach of Tampa Bay, by shifting his domicile to Florida, he stands to save $173,307 per year in state income tax.[ii]

Clearly, the Buccaneers have some attractive assets — most notably, a young, highly regarded QB Josh Freeman, a talented defensive line rotation and a dynamic wide-out Mike Williams — that would appeal to any coach. But from Schiano’s perspective, saving 8.97% a year in taxes may be the sweetest plum of all.

[i] Given the high price he could command for running camps, speaking engagements, etc… additional income of $600,000 per year is probably a reasonable estimate

[ii] after accounting for the federal benefit for the state taxes paid to New Jersey.

The items in this blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. A select group of Tax Professionals of WithumSmith+Brown write Double Taxation, and any opinions expressed or implied are not necessarily shared by anyone else at WithumSmith+Brown.

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